How investing in the stock market is just like fantasy football

Fantasy football used to be a bunch of guys sitting around in a basement, but as it’s made its way to the mainstream, it’s really becoming a women’s game, too. Brandon Marianne Lee, a fantasy football expert, sat down with me to talk about how building a fantasy team can be just like investing in the stock market.

There are a lot of similarities and most people can open a brokerage account with companies like TDAmeritrade, Fidelity,Charles Schwab or a host of others almost as easily as starting a fantasy football team on Yahoo Sports. I asked Lee to tell me about a few players she really liked in her fantasy football leagues.

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It’s hard to go wrong with a great company with a great CEO

The first player she named was Los Angeles Rams’ running back Todd Gurley.

Looking for a great player with a great coach is a lot like looking for a great company with a great CEO. Cloud computing company Redhat’s (RHT) CEO James Whitehurst is someone investors have raved about for years. Just like Rams coach Sean McVay, Whitehurst was seen as a smart and creative leader. His leadership was a big reason Red Hat sold to IBM earlier this year for $34 billion and why the company’s stock is up 215% over the last five years.

Draft a beaten down stock

The next player she named was Dallas Cowboys wideout Amari Cooper, who had a rough year in 2017-2018 and this year fell to late rounds in the draft. Lee said Cooper’s first two seasons showed he had solid fundamental value, but was just in a bad situation.

“I kind of took a chance on Amari Cooper that a lot of people thought was a bust but frankly he started his first two seasons in the National Football League with over a 1,000 receiving yards,” she said. “That’s typical of an elite player.” Lee says she was patient with Cooper, and once he found the right groove wearing a Dallas Cowboys jersey, he paid off for her.

Finding solid companies is really at the heart of investing. Take a company like Square (SQ). When it went public in November 2015 it wasn’t a company that everybody was talking about and some people even had concerns. But investors who tried the product and could see how it was growing, knew that it could be a real game changer in mobile payments. Three years later that stock is up more than 300 percent.

Wait for value

Next, Lee talked about Kansas City Chiefs second-year quarterback Patrick Mahomes. She argues that when it comes to the quarterback position, in fantasy you should always wait.

Lee explains that she got a great value in waiting out the megastar quarterbacks and looking at the full picture of Mahomes’ situation. She says Mahomes “had all the fundamentals, all the weapons around him, all of the great coaching, and that’s what you look for when you’re looking for an emerging talent.”

This is value investing 101. Value investing is a strategy investors have used for years to judge whether a stock is a good buy. Different investors use different metrics, but at the end of the day there’s just one question: “Am I getting a good deal?” Since the idea is to buy low and sell high, value investing is a great tool to use for the market.

Beware of how companies are affected by outside factors

When it came to drafting Lockett, Lee noted that something had changed in Seattle and she found a way to take advantage. That was similar to the way many investors felt about small-cap stocks this year. With other players injured, Lee felt that Lockett “was in the best circumstance to break through.” She notes that Seattle quarterback Russell Wilson threw the record most touchdowns in the season prior, but had lost several receivers to trades and injury, so it made sense that those touchdowns would land in the hands of Lockett.

The big change for the market coming into 2018 was that the U.S.-China trade war began. Investors looked to small-cap as a way to invest in U.S. companies that made most of their money at home rather than depending on overseas sales. Companies like BJ’s Restaurant (BJRI) or Universal Insurance Holdings (UVE) that have both gained more than 100% at their highs this year are some good examples.

When you look, it’s pretty easy to see the parallels between putting together a fantasy football team and putting together a stock portfolio. And think about how much time the average player spends playing fantasy football.

For Lee, she’s putting in “hours upon hours,” she said. “And I know everyone does it.”

If you put that time into investing — or even a fraction of that time — you can make hundreds or thousands or even millions of dollars in the market. But keep in mind that he market comes with risk. Just like you can lose your entry fee in a fantasy league, you can lose money in the market. Stock prices go up and down, but if you pick good companies, make smart bets and invest for the long-term, investing can be very rewarding.